Health of wealth

Written by Dilip Bobb | Updated: Nov 18 2012, 07:40am hrs
There are the rich and there are the super rich. Now, heres the breaking news. Despite the ongoing global economic crisis, the monetary threshold to make it to either category keeps on rising, as do spending habits. In fact, a recent TV programme on CNBC in America showed that wealth is being created more quickly, dramatically, and controversially than ever before, fueling whats been described as a New Gilded Age. Led by Russian oligarchs, business tycoons with dubious backgrounds and a newly rich political class, new age billionaires are keeping cash registers at luxury outlets ringing even as the less fortunate desperately juggle with their monthly household budget. That trend is reflected in the Wealth Report, 2012, an annual exercise conducted jointly by international property consultants Knight Frank and Citi Private Bank. In its research on trends in luxury spending, the Report notes that global spending on luxury goods actually rose 17% to exceed levels that prevailed prior to the economic crisis. A key area of that increased spend is investing in prime real estate, and not necessary in the country where wealthy individuals are based. Of the top ten international real estate property hotspots listed, Mumbai figures fairly prominently, presumably south Mumbai, where sea-facing luxury flats are in great demand.

Indeed, the super rich, defined by having a minimum average net worth of $100 million over the past 10 years, are investing heavily in art and jewelery, apart from real estate which basically means having a second home, and not property as investment. Bonds and stock markets have slid down the list of investments as have the United States and the United Kingdom as locations for a second home, with Singapore, Shanghai and Dubai emerging as the most popular. India, of course, has different parameters for measuring wealth, with high net worth (HNW) individuals defined as those with an average net worth of over R25 crore, but that figure is misleading since the 8,200 HNW individuals in India include 115 who are members of the billionaires club and worth a great deal more. The report also shows that more HNW individuals are investing in things that define the good life, like vintage wines, expensive art and skiing holidays.

Danny Quah of the London School of Economics predicts that by 2050, the world's economic centre of gravity will be somewhere between India and China. In 1980, the global economic centre lay in the middle of the Atlantic. Some of the worlds super-rich have already crossed the Pacific. Facebook co-founder Eduardo Saverin, moved to Singapore in 2009 and has renounced his US citizenship. Jim Rogers, the co-founder of the Quantum Fund with George Soros, moved there in 2007. Singapore's per capita income is estimated by Knight Frank and Citi Private Wealth's 2012 Wealth Report to be the highest in the world at $56,532, measured by purchasing power parity.

Currently, the Asia-Pacific region accounts for almost 27% of luxury spending worldwide, up from 16% five years ago. This will rise to 33% by 2015, according to another survey. By 2050, the Wealth Report estimates the world's wealthy citizens will be dominated by Asia, namely Singapore, Hong Kong, Taiwan and South Korea. The only western economy projected to remain in the top five is the US. The reports list of fastest growing economies between 2010 and 2050 also gives more credence that the worlds wealth is moving toward Asia. Of the top 10 fastest rising economiesNigeria, India, Iraq, Bangladesh, Vietnam, the Philippines, Mongolia, Indonesia, Sri Lanka and Egypt, respectivelyall but three are in Asia. Old World economies will have the worst growth performance in the next 40 years, the report predicts: Spain, France, Sweden, Belgium, Switzerland, Austria, the Netherlands, Italy and Germany are at the bottom of the list. But Japan and its ageing population will have the weakest projected growth of all economies, according to Knight Frank estimates.

The difference between the rich and super rich is, of course, subjective, varying by region and by individual definitions. To get access to private banks and wealth-management firms, you need investible assets of $10 million (R56 crore). In private-banking code, it requires at least $30 million to be classified as super rich. Even then, you do not rate among the seriously wealthy unless you have certain assets which, in India, means a second home either in London, Dubai (increasingly popular with real estate prices having dropped) or New York and in addition, a luxury villa in north Goa within walking distance of the sea. This, of course, does not include ownership of farmhouses in places like Mehrauli or Alibaug. Then there are the planes and cars and boats which no self-respecting billionaire can do without. Getting rich is tough enough, its being able to maintain that lifestyle in tough times that defines the health of your wealth.

The writer is Group Editor, Special Projects & Features, The Indian Express